Where to now for retail investors after Q1?


RHB Research says that Q2 2014 for the Malaysian stock market looks positive in view of money flowing back into the region (screengrab of last one-year KLCI performance: Star Online Marketwatch).

RHB Research says that Q2 2014 for the Malaysian stock market looks positive in view of money flowing back into the region (screengrab of last one-year KLCI performance: Star Online Marketwatch).

By Zhen M

The global economic recovery is strengthening, albeit still weak and uneven. The International Monetary Fund in its World Economic Outlook report forecasted a 3.7% growth for 2014, with the US leading the recovery.

Against this backdrop, Malaysia is expected to experience steady growth, mainly from export recovery, opines Sia Ket Ee, Hong Leong Investment Bank’s economist. He believes that domestic demand would, however, experience some moderation.

“Consumer spending growth is expected to taper due to the erosion of the consumer’s purchasing power and the consolidation in the public sector spending. Meanwhile, private sector investor spending should just be sustaining its trend from last year as there have not been any major announcements of new projects for this year,” he says.

Chris Eng, head of research, Investment Management Division of Etiqa Insurance & Takaful, notes that while the global economy is improving for the first time in six years where all the major parts of the globe (e.g. US, Europe, Japan and China) are recording reasonable growth, the stock markets have somewhat priced in the higher expectations.

“As such, I expect equity markets to correct somewhat in the middle of the year before resuming their rally towards year-end; the standard ‘Sell in May and Go Away’ scenario,” he says.

Looking at the performance of the regional stock markets in the past one week (late March), chartist Mohammad Ashraf bin Abu Bakar Yahya spots “a sudden positive reversal” in the Hong Kong, Singapore, and Jakarta markets.

“The regional markets have been in a downtrend for one year but based on the data, it appears that money is coming back to the region. This could spill over to our side.  Quarter two looks positive,” the technical analyst from RHB Research says.

He believes that in such a scenario, the share prices of Maybank and CIMB should stand to benefit. “These two banks have been underperforming and consequently, the KLCI has not been moving much. If they move, then we will see the KLCI moving,” he says.

As for which sectors an investor should pay heed to, Ashraf says that based on the price movements of the past few months, no sector stands out as a clear leader. “There are lots of mixed signals within the sectors, with some stocks moving, some not.”

That said, he is fairly positive on telecoms, “and maybe plantation. I’m more positive on telecoms though. And if Maybank and CIMB move, banks too.”

“I would go for plantation companies given the somewhat dry weather we are experiencing at the moment with a potential El Nino at the yearend. Also banking as the higher interest rates toward the yearend will give rise to better margins… that, coupled with the fact that banks have been laggards in the past two years. Basically, I would go more into big caps given that the small caps have done so well since GE13,” Eng shares.

Oil and gas (O&G) is Sia’s bet for retail investors. “O&G is still in the news. The government is pushing for growth in this sector, especially in the Pengarang area, and Petronas is serious about its capital spending to boost O&G production. As such, we will see sustainable news flow that will keep the sector exciting, especially for retail investors.”

Sia believes that movement in sectors other than O&G would be counter-specific, rather than sector-wide, given that company earnings, in general, “are not going to be as great as previous years.”

He also does not see a rally in commodities as the tapering of the US quantitative easing (QE) would likely impact commodity prices and speculation. “Prices would move up and down due to geopolitical tensions, such as in Ukraine, and supply and demand, but I don’t think that would drive an upcycle.”

As for gold, Ashraf says spot prices will have to hold above the psychological US$1,300 an ounce resistance to translate to any real push up. But gold prices have been on the decline after reaching a six-month high of US$1,392 on 17 March.

“Gold is a bit tricky since the QE tapering should mean a stronger USD, which should curb gold price hikes. Similarly, the potential hike in interest rates, already reflected somewhat in bond yields, should mean that easy liquidity will soon end and this should cap any strong rise in the prices of alternative investments,” says Eng.

“Gold (as an investment) only works when there’s fear about the global economic outlook and the value of conventional currencies. For the moment, global growth and the USD are expected to strengthen, making investment in gold not that attractive,” echoes Sia, adding that “the tension in Ukraine may cause gold prices to spike but that will not be sustainable.”


Note: The above commentary is not a recommendation to buy or sell stocks. Please consult your stockbroker/financial consultant before making any investment decision.

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